On November 5th, pharmaceutical assets in both the A-share and Hong Kong markets extended the previous day's rally.
Hong Kong innovative drug names showed strong momentum, with the benchmark indices of HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) and HUABAO HANG SENG HONG KONG STOCK CONNECT MEDICAL ETF (159137) touching intraday highs of 5% and 4% respectively, after surging 6.87% and 7.71% at the previous close.
A-share pharma moved in tandem, with the CSI Medical Index rising another 3% to secure a fifth consecutive gain. The HUABAO MEDICAL ETF (512170) tracking this index held firmly above all moving averages, while the benchmark index of HUABAO PHARMA ETF (562050) climbed 1.83% to reclaim its half-year line.
With pharma strengthening for consecutive sessions, what are the driving factors behind this rally, and how should investors view the sustainability of the trend and current allocation opportunities? Fund manager Zhang Fang of HUABAO MEDICAL ETF (512170) offers his latest interpretation.
Q3 Earnings: Innovative Drugs and Leading CXO Players Deliver Strong Results
Looking at third-quarter reports, innovative drugs and leading CXO companies formed the core highlights of the pharmaceutical sector.
On the CXO side, WuXi AppTec posted revenue of approximately 45.5 billion yuan for the first three quarters, up about 38.6% year-on-year, with net profit attributable to shareholders rising roughly 60.6% year-on-year. Its backlog of orders for continuing operations reached approximately 76.7 billion yuan, up about 36% year-on-year, and the company once again raised its full-year revenue guidance to approximately 61-62 billion yuan.
On the innovative drug side, some companies saw substantial year-on-year growth in net profit attributable to shareholders for the first three quarters, with even greater profit elasticity in the third quarter alone. BD upfront payments and milestone receipts were important drivers, while commercial product sales also improved. For instance, Innovent Biologics recorded product revenue exceeding 4.7 billion yuan in the third quarter, up more than 40% year-on-year.
Fund Holdings: Significant Replenishment, but Absolute Positioning Still Low
From the perspective of fund holdings, public funds significantly replenished their allocation to pharmaceutical and biotech sectors, though absolute positioning remains at historically low levels.
According to brokerage statistics on actively managed equity funds' third-quarter 2026 reports, the heavy-position ratio in pharmaceutical and biotech rose by approximately 3.9 to 4.0 percentage points quarter-on-quarter to around 9.4% to 9.5%.
At the individual stock level, WuXi AppTec's heavy-position ratio rose notably, placing it among the top three heavy holdings in active equity funds. Against the backdrop of a deep correction in technology growth stocks, pharma—characterized by low valuation, low crowding, and verified orders and earnings—became an important direction for phased portfolio rebalancing. Although positioning has recovered from the second-quarter low, the historical percentile remains modest, suggesting room for further replenishment may still exist.
Policy and Industry Catalysts: Dual Catalog Implementation Imminent, ESMO Data and BD Resonate
From a news perspective, policy has entered a "dual catalog results window."
The National Healthcare Security Administration has completed on-site negotiations, bidding, and result confirmation for the basic medical insurance and commercial insurance innovative drug catalogs, and is now in the agreement-signing phase. The new catalogs are expected to be published in November and take effect on January 1, 2027. The tiered payment framework of "basic medical insurance covering basics—commercial insurance innovation catalog supplementing high-value drugs" continues to take shape, forming a critical observation period for innovative drug market access and repricing.
On the industry side, late October saw a dense readout of clinical data for domestic ADCs, bispecific antibodies, and other modalities at the ESMO annual meeting, with multiple studies selected for oral presentations and late-breaking abstracts, reinforcing the narrative that "Chinese innovative drugs are moving from licensing stories to global clinical and commercialization validation." Combined with continued active licensing-out deals during the year, BD activity and academic conference data remain catalysts for sentiment and valuation repricing.
Overseas Mapping: US Midterm Elections Marginally Positive for Pharma
Overseas, Democrats winning congressional dominance in the US midterm elections is marginally positive for the pharmaceutical sector.
First, on coverage and demand: Democrats are more inclined to restore and extend ACA health insurance subsidies and stabilize Medicaid, which helps expand insurance coverage and prescription volumes, supporting hospital cash flows and medication demand. Second, on the innovation ecosystem: Congress is more likely to protect NIH research budgets and FDA review resources, benefiting early-stage biotech financing and pipeline advancement, and positively mapping to global innovative drug R&D outsourcing and BD activity. Third, on policy checks and balances: under a divided government, extreme administrative price-cutting may slow, and policy uncertainty is expected to shift from "unilateral acceleration" to "hearings and negotiation," which is sentiment-positive for risk appetite recovery in innovative drugs and CXO.
In summary, the medium-term allocation value of the pharmaceutical sector may persist—supported by a historically low valuation percentile (around the 10th percentile over the past decade), public fund positioning that has recovered but is not yet crowded, and institutionalized progress in the innovative drug payment system. Combined with the externally warmer mapping of healthcare coverage and innovation ecosystem after the US midterm elections, the focus remains on innovative drugs and CXO directions.
Pharmaceutical Sector Allocation Tools to Watch:
HUABAO MEDICAL ETF (512170): A flagship pharmaceutical and medical ETF, with assets exceeding 24.3 billion yuan as of the third-quarter report. It focuses on medical devices plus medical services (with CXO exposure exceeding 30%), while also covering AI healthcare and consumer healthcare. It is both a margin trading and securities lending target and an ETF Connect target. Off-exchange feeder fund: 012323.
HUABAO HANG SENG HONG KONG STOCK CONNECT MEDICAL ETF (159137): A T+0 trading tool! Its benchmark index has CXO exposure exceeding 50%, with the WuXi group accounting for 40%. Off-exchange feeder fund: 026922.
HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880): A T+0 trading tool! Its benchmark index is 100% invested in innovative drug R&D companies, with 70% of positions betting on innovative drug R&D leaders. Off-exchange feeder fund: 025221.
HUABAO PHARMA ETF (562050): The only ETF in the entire market tracking a pharmaceutical index, with an exclusive allocation of approximately "70% innovative drugs + 20% traditional Chinese medicine," combining the high growth of innovative drugs with the high dividends of traditional Chinese medicine. Off-exchange feeder fund: 024986.
[Data Source] Public information from Shanghai, Hong Kong, and Shenzhen exchanges, China Securities Index Company, Hang Seng Index Company, etc. Weight data as of October 31, 2026.
[Fund Fee Rates] ETF funds do not charge sales service fees. When investors subscribe or redeem fund shares, the subscription and redemption agent broker may charge a commission not exceeding 0.5%, which includes fees charged by stock exchanges, registrars, and other related parties. For fund fee rates, please refer to the legal documents of each fund.
[Special Notice] The risk rating assessed by the fund manager for HUABAO HANG SENG HONG KONG STOCK CONNECT MEDICAL ETF and its feeder fund, HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG ETF feeder fund, and HUABAO MEDICAL ETF feeder fund is R4-medium-high risk, suitable for aggressive (C4) and above investors. The risk rating for HUABAO MEDICAL ETF, HUABAO PHARMA ETF and their feeder funds is R3-medium risk, suitable for balanced (C3) and above investors.
[Risk Disclosure] The index constituent stocks mentioned in this article are for illustrative purposes only. Individual stock descriptions do not constitute investment advice in any form, nor do they represent the holdings or trading activities of any fund managed by the manager. The composition of the benchmark index constituents is adjusted in a timely manner according to the index compilation rules. Any information appearing in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, and any form of expression) is for reference only, and investors must be responsible for any investment decisions they make independently. In addition, any views, analyses, and forecasts in this article do not constitute investment advice of any form to readers, nor shall they bear any responsibility for direct or indirect losses arising from the use of the content herein. Fund investment involves risks. Past performance of a fund does not guarantee its future performance. The performance of other funds managed by the fund manager does not constitute a guarantee of fund performance. Fund investment requires caution. MACD golden cross signals have formed—these stocks are performing well!
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